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Accounting Question (please help)
The following details relate to a shop owned by Joan Socks, which currently sells 12,000
Pairs of shoes annually. Selling price per pair of shoes $80 Purchase cost per pair of shoes $50 Total annual fixed costs: $ Salaries 80,000 Advertising 40,000 Other fixed expenses 150,000 Required (a) Calculate the breakeven point and margin of safety in number of pairs of shoes sold; (b) Assume that 11,000 pairs of shoes were sold in a year. Calculate the shop's net profit (or Loss); (c) If a selling commission of $5 per pair of shoes sold was to be introduced, calculate the Number of pairs of shoes which would need to be sold in a year in order to earn a net Profit of $50,000; (d) Assume that for next year an additional advertising campaign costing $20,000 is Proposed, whilst at the same time selling prices are to be increased by 15%. Calculate The breakeven point in numbers of pairs of shoes; |
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This appears to be a home work question. If you had shown your work, some one will surely help you. However, I can show you the steps for solving the problem which is also available in your text book(s).
1. BE Point = Fixed costs/Contribution per unit 2. Net Profit = sales in units x contribution per unit - fixed costs 3. Number of units to be sold to achieve desired profit: (Desired profit + Total fixed costs)/Revised contribution per unit 4. Revised BEP = Revised fixed costs/revised contribution per unit |
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Solutions
(a) The Breakeven Point and Margin of Safety; Q = ($80,000+$40,000+$150,000)/($80 - $50) Q = $270,000/$30 Q = 9,000 pairs of shoes for break even Margin of Safety: Sales (at annual sales of 12,000 pairs of shoes) (a) $960,000 Break-even sales (at 9,000 pairs of shoes) $720,000 Margin of Safety (b) $240,000 Margin of Safety percentage, (b) / (a) 25% (b) With 11,000 pairs of shoes sold; 11,000 x ($80 - $50) - $270,000 $330,000 - $270,000 = $60,000 net profit (c) With selling commission of $5 to earn $50,000; $50,000 = ($80 - $50 - $5) x Q - $270,000 $50,000 = $25 x Q - $270,000 $25 x Q = $50,000+$270,000 Q = $320,000 / $25 Q = 12,800 pairs of shoes (d) With advertizing campaign and selling price rise; Q = ($80,000+$40,000+$150,000+$20,000) / ($92 - $50) Q = $290,000 / $42 Q = 6,905 pairs of shoes to break even |
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